SIERRA MONITOR CORP /CA/

On March 28, 2019 the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) MSA Safety Incorporated (“MSA”), a global safety equipment manufacturer and MSA’s indirect, wholly owned subsidiary, Gateway Merger Sub, Inc., a California corporation (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with SMC surviving the Merger as an indirect wholly owned subsidiary of MSA (the “Merger”). Upon completion of the Merger, each share of common stock, $0.001 par value per share, of the Company, issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”), other than shares owned or held in treasury by SMC, owned by MSA or Merger Sub, or with respect to which the holder thereof has properly exercised dissenters’ rights, will be cancelled and converted into the right to receive $3.25 in cash per share, without interest and less any required withholding taxes. Under the Merger Agreement, at the Effective Time of the Merger, MSA Safety will assume vested or unvested and outstanding stock options and restricted stock awards granted to Company employees.

In February 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-02, Leases (ASC 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize Right-Of-Use (“ROU”) Asset and Lease Liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). On January 1, 2019, the Company adopted FASB Accounting Standards Codification (“ASC”) Topic 842 using the modified retrospective method for all material leases that existed at or commenced after January 1, 2019. ROU Assets are amortized over their estimated useful life, which represents the full term of the lease. The lease liability is representative of the present value of future payments due under the lease, discounted using the incremental borrowing rate. The lease liability will be increased by accreted interest at the incremental borrowing rate and reduced by future payments made under the lease obligation. On January 1, 2019, the Company recognized right of use (ROU) assets and liabilities of $1,335,148 in the accompanying condensed balance sheets. There was no impact to retained earnings upon the adoption of Topic 842.

We lease certain office space under a non-cancelable operating lease. This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further this lease does not contain contingent rent provisions. This lease terminates on April 30, 2023 and we do not have an option to renew. This lease does include both lease (e.g., fixed rent) and non-lease components (e.g., common-area and other maintenance costs). The non-lease components are deemed to be executory costs and are therefore excluded from the minimum lease payments used to determine the present value of the operating lease obligation and related right-of-use asset.

For the three months ended March 31, 2019, Sierra Monitor Corporation (“we”, “us” or the “Company”) reported net sales of $5,523,218 compared to $5,151,016 for the three months ended March 31, 2018. The results for the first quarter of fiscal 2019 represent a 7.2% increase from the same period in the prior year. The increase in sales in the first quarter of 2019 compared to the same period in the prior year was primarily attributable to increased revenue in both our FieldServer OEM and system integrator channels.

Sales of our FieldServer product line increased by 21.8% in the first quarter of 2019 compared to the same period in the prior year. Our FieldServer products are primarily sold to OEMs who develop a broad range of products relevant to facility automation, such as boilers, chillers, air handlers, lighting controls, generator sets, electric sub-meters, etc. Our FieldServer products are also bought by system integrators looking to connect various discrete automation sub-systems to a common facility management system. Our IoT focused products are showing growth due to pull through from other solutions like our SMC Cloud offer which is enabling device management, visualization and analytics. Customers are buying our equipment to access the cloud solution.